Sunday, March 2, 2008

Union Budget 08: Good news for PE market?

Tax on short-term capital gains is increase to 15%. This would have a distinct impact on the market buoyancy. There would be less speculative buying for a short period. Infact, this could effect much of emotional buying and selling activity in Capital market to certain extent. Atleast, there would be more rationality and less guesswork. Lesser chances for index to go up and down in a topsy-turvy manner.

Is it good news for private Equity Market?

Private equity is somewhat more structured and rational investment option. It is an asset class consisting of equity investments in companies. These are not traded on public stock exchanges. Investments typically involve a transformational, value-added, with active management participation on strategic level.

Private equity firms generally receive a return on their investments through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. Unlisted securities may be sold directly to investors by the company (called a private offering) or to a private equity fund, which pools contributions from smaller investors to create a capital pool.

The private equity market in India, which attracted $2.2 billion in investment capital in 2005 and $3.5 billion in the 2006, will reach at least $7 billion in 2010. That estimate — described as a conservative projection of India's upside private equity market potential — is among the findings in a new Bain & Company (US Business consulting firm) study, "India Private Equity Outlook ."

Most of the early stage startups, access equity investment options rather than loans. These equity investments may come in different formats. As a business planner, I have found, the consensus is, investment that adds value, is more accepted by early stage entrepreneur’s then investment where you have to give collaterals.

I might be biased, as I do business planning for living .However, the fact is , most of my clients, don’t go to banks for lending, rather they sell off some equity, to bring in money in the venture.

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